Once upon a time in 1948, a country was born. The birth of this country wasn’t an easy one and is still fraught with challenges from her neighbors. This country is Israel. However, given her relatively short history, this country has proved to be a tough cookie to crack. As then, Prime Minister Netanyahu pledged in 2010, today the country is one of the top 5 leaders in cybersecurity. The country has made heavy investments and developed world class cyber-security technologies that almost anyone with deep pockets are interested in.
The worth of cybersecurity market globally
Cybersecurity is not just about protecting one’s e-mail accounts. It is to prevent unwarranted access to one’s personal digital assets, which includes bank accounts, social profile, pensions, etc. The worth of every single individual with a digital footprint is immeasurable. However, the worth of cybersecurity is. In 2017, this niche market is valued at USD 120 Billion. By 2024, this market will grow to USD 300 Billion, according to Global Market Insights, Inc. Effectively, this market has doubled its worth in 7 years.
Why Israel invests more in cybersecurity
Since biblical times, the land of Israel has been promised to kings and sought after by prophets. Today, it is recognized by the United Nations, but not many in the Arab world. Hence, the love-hate relationship Israel has with her neighbours means that she always needs to be on her guard. As a country that is relatively small and limited resources, Israel has a dire need to protect her borders on land, sea, air and the latest realm, cyberspace. Israel cannot afford to be complacent in any of this area. Any opportunity could lead to a full-scale invasion by foreign forces. Cybersecurity has the highest potential impact, as it can lead to mass panic and misinformation.
In all this chaos, there is also money to be made. Given the potential Israel has in developing latest cybersecurity technology, she can afford to sell or lease these to other countries and companies that share similar concerns. This is a great export opportunity for Israel, as it is simply bits of binary codes. The return on investment is immense, as the customers tend to be loyal and long-term.
How Israel develops its top talents
Israel’s challenging history has led her to investigate all forms of security from a holistic point of view. Hence, Israel starts identifying its best and brightest minds as early as 12 years old from schools. These young talents are encouraged to join coding clubs to learn new skills and demonstrate aptitude. As they progress, the top talents are ear-marked for special training when they enroll for their mandatory national defense program. At this stage, Israel puts these talents through a rigorous physical and mental training regime. They also develop all forms of malware and cybersecurity software. They are exposed to the latest technologies in the industry and access to the best minds. All this hard work isn’t about only stick and no carrots. At the end of their national service, these top talents have job offers lined up with top tier companies. They also command top salaries that make the average Israeli worker teary. Hence, this whole ecosystem of public-private relationships ensure Israel has a continuous top performing pool of talents that contributes towards its cybersecurity industry. This is evident with the growing number of founders in Israeli cybersecurity start-ups come from post-IDF with private sector experience.
What’s happening with Israeli cybersecurity companies
Today, the landscape of Israeli cybersecurity firms is interesting and exciting. In 2018, the total amount of funding for Israeli cybersecurity companies across all stages grew 22% year-over-year to $1.03B. This growth has been consistent in the previous two years, both showing more than 20% of investment per year. There is also a fierce appetite from investors to pump into Israeli start-ups. For example, the two largest seed funding rounds this year were in the IoT security domain. VDOO, founded by ex-Cyvera entrepreneurs (acquired by Palo Alto Networks in 2014 for $200M) and which develops security solutions for IoT vendors, raised an abnormally high seed round of $13M. Toka Cyber has secured $12.5M seed funding from Andreessen Horowitz and others, to develop and expand their IoT cybersecurity platform for governmental agencies. These are no longer the outliers but the norms in investing in Israel’s cybersecurity start-ups.
The future of Israeli cybersecurity industry
As money is pouring into the country and industry, the founders are also cashing out. The acquisition of Sygnia by Singaporean holding giant Temasek was remarkable because it shows that the Israeli cyber market continues to attract new classes and kinds of global strategic players each year. In addition, Thoma Bravo’s $2.1B acquisition of Israeli cyber firm Imperva made waves throughout the industry. Industry expert, Tsahy Shapsa, reflection on this situation is accurate. As founders and co-founders exit from the scene, this allows them to be repeat entrepreneurs to create bigger and better technology. This form of organic growth is exciting as it creates a virtuous cycle. It also gives investors confidence as they know it’s the real deal that they’re investing in.
Israel currently has all the right elements to continue to grow in cybersecurity. As our lives becomes more connected and dependent on the internet, the threat of cybersecurity becomes more prevalent. Israel is poised to capitalize on this growth. There are technologies that’s being researched which could disrupt the cybersecurity industry, such as quantum computing and quantum networks.
However, Israel 2.0 will be ready to adopt, adapt and advance with it.
Thank you for reading my post. I regularly write about private market opportunities and trends. If you would like to read my regular posts feel free to also connect on LinkedIn, Twitter or via Atlanta Capital Group Investment Management.
Greg Silberman is the Chief Investment Officer of ACG Investment Management LLC (“ACGIM”). ACGIM specializes in creating custom private market solutions for RIA/Family Office clients.
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